German Producer Prices Mark the First annual Decline In Five Years

German March PPI down 0.7% m/m and -0.5% y/y. This was weaker than our median of -0.1% y/y and the first decline in the annual rate in five years. The breakdown showed that oil prices remain a key reason, with prices for fuels down 2.7% m/m and energy down 1.4% m/m and 20.7% y/y and prices for heating oil down 6.6% m/m and 42.1% y/y. However, other energy prices are still rising and to a certain extent compensate for that, while prices for basic goods, as well as consumer goods are also sliding. PPI was weaker than expected in March, but the general downward trend is expected and confirms that headline CPI is likely to move into negative territory in the middle of the year. However, so far we agree with the ECB that this is likely to be temporary and mainly due to base effects, which will reverse later in the year so that the risk of full out deflation is limited for now.